Under the European Market Infrastructure Regulation (“EMIR”), all counterparties are required to report details of any derivative contract they have concluded, or which the counterparty has modified or terminated, to a registered Trade Repository.
EMIR requirements involve:
- Reporting OTC derivatives
- Clearing eligible OTC derivatives
- Measures to reduce counterparty credit risk and operational risk for bilaterally cleared OTC derivatives
- Common rules for central counterparties (“CCPs”) and for Trade Repositories (“TRs”)
- Rules on the establishment of interoperability between CCPs
EMIR requires all market participants to report details of all derivative contracts (interest rate swaps, FX, credit, equity and commodity) to TRs.
- Both counterparties must report each trade unless by prior arrangement, one party can report on behalf of another counterparty.
- Either counterparty to a trade may delegate reporting to a third-party
- Where one counterparty reports on behalf of another counterparty, or a third-party reports a contract on behalf of one or both counterparties, the report details will include the full set of details as required by each counterparty.
Legal Entity Identifiers
All UK counterparties that enter into derivative trades will need to have a Legal Entity Identifier (“LEI”) in order to meet reporting obligations.
An LEI is a 20-character code that uniquely identifies entities who participate on the financial markets.
All reports require a Classification of Financial Instrument (“CFI”) Code. The CFI is a six-character code used to classify a financial instrument, as defined in ISO 10962.
Who does EMIR apply to?
EMIR applies to any entity established in the European Union (“EU”) that has entered into a derivative contract, and applies indirectly to non-EU counterparties trading with EU parties. EMIR recognises two (2) main counterparties to a derivatives contract:
- Financial counterparties – investment firms, fund managers, banks, insurers etc.
- Non-Financial counterparties – entities not involved in financial services.
What needs to be reported and to whom?
Financial and non-financial firms trading in derivatives must report details of all derivatives trades via a TR. This includes all the details of trades and any event thereafter that affects the valuation or the terms of the trade. It also includes identification of the country of the counterparty (country of incorporation for legal entities, country of residence for natural persons). EMIR covers OTC derivatives and exchange-traded derivatives.
Any derivative contract is required to be reported under EMIR reporting requirements, and includes:
- Financial derivatives settled physically or in cash;
- Commodity derivatives that must or may be cash settled
- Physically settled commodity derivatives that are traded on a regulated market
- Physically settled commodity derivatives that have characteristics of other derivative financial instruments
The definition of a derivative contract is based on the Markets in Financial Instruments Directive (“MiFID”)
When do reports have to be made?
Reports are required to be submitted to a registered TR no later than one working day after the trade has been made.
What is the revised EMIR RTS and ITS?
In November 2017, the revised Regulatory Technical Standards (“RTS”) and Implementing Technical Standards (“ITS”) began to apply. The changes made by the RTS and ITS to EMIR include addition of reportable instrument classes, increase in the number of reporting fields, changes to collateral reporting and introduction of the requirement to report CFI codes.
Firms that use TRAction Fintech for their EMIR reporting find they save time and money in complying with their regulatory requirements. We would be happy to talk to you about how we can help to simplify your EMIR reporting requirements, contact us on +44 20 8050 1317.